Completion Mechanism

A mechanism used in M&A transactions where the final purchase price is adjusted after closing based on the target company's actual financial position — typically net assets, working capital, debt, and cash — as at the completion date. Completion accounts are prepared post-closing and compared against agreed targets, with adjustments settling the difference between estimated and actual values.

A pricing mechanism in M&A transactions where the purchase price is fixed based on a set of accounts prepared at a specified date prior to completion, with value leakage protections to ensure no value is extracted from the target between the locked box date and closing. Locked box mechanisms provide price certainty and avoid the disputes often associated with completion accounts adjustments.

A contractual arrangement in an M&A transaction where a portion of the purchase price is contingent on the acquired business achieving specified financial or operational targets during a defined period following completion. Earnouts bridge valuation gaps between buyer and seller, incentivise seller retention and performance, and reduce buyer risk.

A target level of net working capital agreed between buyer and seller in an acquisition, used as the basis for post-closing purchase price adjustments. The working capital peg ensures the buyer receives a business with a normalised level of operating liquidity, with adjustments made if actual working capital at closing is above or below the agreed amount.

A mechanism in M&A transactions that adjusts the purchase price based on the difference between actual working capital at closing and a pre-agreed target level. Net working capital adjustments ensure the buyer receives the agreed level of operating liquidity and are a standard feature of enterprise value to equity value bridge calculations.

Financial statements that present historical or projected financial information adjusted to reflect a specific transaction, event, or set of assumptions as if it had already occurred. In M&A, pro forma financials combine the acquirer's and target's results, incorporate purchase price allocation adjustments, and eliminate intercompany transactions to show the post-combination financial position.

The agreed level of working capital that the target business should have at the completion of an M&A transaction, established during negotiations and used as a benchmark for purchase price adjustments under a completion accounts mechanism. The target is typically set at the average net working capital over a 12-month trailing period, normalised for seasonality and non-recurring items.

A third-party account established at closing of an M&A transaction to hold a portion of the purchase price (typically 5-15%) for a specified period, providing the buyer with security against potential warranty claims, indemnity obligations, or purchase price adjustments. The escrowed funds are released to the seller upon expiry of the escrow period or resolution of any outstanding claims.